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Efforts to develop the FutureGen “clean coal” demonstration project in western Illinois cleared a major hurdle last month with a legal victory that will force consumers to purchase the $1.65 billion project’s output.

But a different legal challenge — a Sierra Club complaint filed with the Illinois Pollution Control Board — is keeping jittery investors on the sideline and threatens to derail development of the plant, a FutureGen executive said in testimony filed with the board.

FutureGen 2.0 is the second iteration of a federal clean coal demonstration project originally proposed by the George W. Bush administration more than a decade ago. The original, more ambitious plan was scrapped after years of planning and political rancor because of massive cost increases.

As reconfigured four years ago, the project calls for the retrofitting of a 65-year-old coal-fueled power plant in western Illinois to enable it to capture carbon dioxide emissions, which would be stored 4,000 feet underground in a geologic saline formation.

The project is supported by $1 billion in federal stimulus funding. But under the American Recovery and Reinvestment Act, the money must be fully spent by the end of September 2015.

Ken Humphreys, chief executive of the FutureGen Industrial Alliance Inc., spelled out in testimony to the Illinois Pollution Control Board that major construction spending can’t begin until the alliance secures a remaining $650 million in private capital. And investors won’t commit financing under the cloud of uncertainty presented by the air permit challenge.

Alliance officials worked this spring to arrange equity and debt financing, Humphreys said. But markets are “extremely sensitive” to risks posed by litigation delays.

“To date, neither the equity or debt markets will finance the project while the claim remains outstanding,” he said. “Therefore, the mere presence of the claim is damaging to the project and threatens the alliance’s ability to obtain the private-sector financing necessary for the project to advance.”

As recently as February, a Department of Energy presentation showed FutureGen officials planned its financial closing and to begin construction this summer. In fact, the minor source permit issued by the Illinois Environmental Protection Agency for the project requires construction to begin by the end of the month.

Humphreys wasn’t available to discuss the case as it relates to the project timeline, alliance spokesman Lawrence Pacheco said.

But in an emailed statement, Pacheco said the alliance believes it will soon get resolution to the Sierra Club complaint and has sent equipment and contractors to the Meredosia plant for early construction activities.

‘Substantial’ momentum

Pacheco said there’s been “substantial” momentum on the project in recent months, including the completion of preconstruction design work, a draft permit from U.S. EPA for CO2 storage (Greenwire, April 1), a CO2 pipeline permit from the Illinois Commerce Commission and, most recently, an Illinois Court of Appeals ruling in FutureGen’s favor on an ICC-approved power purchase agreement (ClimateWire, July 23).

The alliance remains focused on satisfying requirements for financial closing, including completion of the pipeline easement acquisition, final permitting requirements and resolving the Sierra Club complaint, he said.

The environmental group argues that the FutureGen Alliance and Ameren Corp., the owner of the Meredosia plant that is being retrofitted and will be the centerpiece of the project, would violate the federal Clean Air Act by converting a boiler without obtaining the appropriate air permit from EPA.

The Sierra Club filed the complaint in U.S. District Court for the Central District of Illinois days after state regulators issued an a permit for the project, arguing that a Prevention of Significant Deterioration (PSD) permit was needed because work to be performed represents a “major modification” to an existing stationary air pollution source.

The FutureGen alliance disagreed, noting that the Illinois EPA had issued all necessary construction permits and likewise concluded that a PSD permit isn’t necessary. The alliance called the lawsuit a “collateral attack” on the state permitting process.

In a June 9 opinion, U.S. District Judge Colin Bruce granted the alliance’s motion and dismissed the complaint, saying the Pollution Control Board was the appropriate forum for the case.

“Illinois cannot be expected to effectively control air pollution if it must contend with a federal district court, not as familiar with its regulatory law, second guessing its decisions under the state’s regulatory scheme,” Bruce wrote.

Work to be performed at Meredosia involves replacing an existing boiler with one compatible with oxy-combustion technology. Other boilers at the World War II-era plant, which was gradually expanded in subsequent decades, have been shut down and won’t be restarted.

The oxy-combustion technology will burn coal in the presence of oxygen and recycled flue gas, yielding a stream of concentrated CO2 that will be passed through a purification and compression unit. The gas will be piped to an underground storage site approximately 30 miles to the east.

Overall, the 168-megawatt plant would capture at least 90 percent of CO2 emissions, about 1.2 million tons a year, and emissions of other air pollutants at a level well below that of conventional coal-fueled power plants.

“Given all of the rhetoric about how clean it is, what is the big issue with getting the permit?” asked Eva Schueller, a Sierra Club attorney in San Francisco.

Federal funds’ clock ticking

The Sierra Club refiled the complaint with the Pollution Control Board a week after it was dismissed in federal court and now has until Aug. 25 to respond to a FutureGen alliance motion to expedite the case and a motion for summary judgment.

The Sierra Club in its filings maintains that the conversion of a boiler at the aging Meredosia plant, shuttered in 2011 because it was uneconomical to continue operating, will release thousands of tons of air pollutants each year that contribute to environmental damage and a variety of health concerns.

Emissions of smog-forming nitrogen oxides permissible under the minor source permit issued by Illinois EPA are equivalent to those released if every citizen of Illinois drove a 2013 Jeep Patriot 12,000 miles a year, the group said in its petition.

And although there is no ozone monitor in the county where the Meredosia plant is located, nearby counties are in violation of air standards for ozone based on data from 2010 to 2012, according to the complaint.

It’s unknown how soon the Pollution Control Board will rule on the FutureGen motion. The board has a status conference on the case planned for Sept. 8. The board’s next public meeting after that is Sept. 18.

Meanwhile, the clock is ticking for FutureGen to spend the federal funds by September 2015. The plant itself is supposed to begin generating electricity by the fall of 2017.

Pacheco said FutureGen officials are working hard to meet the stimulus spending deadline. Any extension would require action by Congress.

“If either the commercial financing cannot be secured or USDOE funding is lost, the project will terminate, playing right into the hands of the Plaintiff’s strategy,” Humphreys’ testimony said.